In case there was any gray area about the circumstances surrounding Gregg Steinhafel’s exit from Target, it’s now clear that the former chief executive was fired from the Minneapolis retailer.
On top of that, his compensation was slashed and his severance package was less generous than many expected because of the retailer’s weak performance in the past year.
The revelations surfaced Monday as the company released its annual proxy statement. It was filed later than usual as the retailer hammered out Steinhafel’s exit pay.
Steinhafel, 59, was ousted as chief executive two weeks ago as the company struggled under the weight of missed sales expectations, a rocky expansion into Canada, and its massive data breach. In a letter to shareholders, Target’s interim board chairwoman Roxanne Austin said those challenges have “tested our resilience.”
In technical terms, Steinhafel’s departure was described in the proxy statement as “involuntary termination for reasons other than for cause.” Target declined to comment beyond the statement.
Companies rarely come right out and say when an executive is ousted, said Brian Yarbrough, an analyst with Edward Jones.
“But involuntary to me means he was pushed out,” he said. “It definitely sounds like he wasn’t as willing to go as they wanted him to be.”
According to the Star Tribune’s analysis, Steinhafel’s total compensation was chopped by about a third in 2013 to $16 million, compared with about $23.5 million in 2012. On his way out, he will get another $21.3 million in severance payments, atop $37.6 million in retirement benefits accrued through deferred compensation plans over his 35-year career with the company. While a considerable package, it is less than some experts had estimated in recent weeks.
Hillary Sale, a professor of corporate law at Washington University in St. Louis, said that if the termination had been “for cause,” then there would be no grounds for a severance payment. But this way, Target can make a severance package and avoid a possible lawsuit.
While a $21 million severance may seem like a lot to many people, Sale noted that it actually pales in comparison with that of Steinhafel’s predecessor, Robert Ulrich. He was given a $164 million severance package when he stepped down from Target in 2008, according to the calculations of corporate governance research firm GMI. That placed it in the top 20 severance packages in the past decade in the firm’s 2012 study.
“This is a whole lot smaller,” Sale said. “But on the other hand, that was really big. Part of what is going on here is that Target’s performance has been down.”
Still, when you add the deferred compensation and what Steinhafel had been paid the past three years, it’s still a lot of money, especially for someone the company terminated, said Mark Reilly, head of executive compensation practice for Verisight.
“Is it way over the top?” he asked. “It’s probably within the range of what others are doing. … It’s still a generous package.”
Steinhafel’s lower compensation last year and the size of his severance package were also partly due to the company’s response after shareholders objected to its executive compensation plan.
At Target’s annual meeting last June, just 52 percent of shareholders supported the plan in an annual nonbinding vote known as Say on Pay. Those shareholders were particularly concerned over the high level of pay to Steinhafel relative to his peers, especially given Target’s total shareholder return over the previous three years.
In Monday’s filing, the board said it held meetings and hosted calls with shareholders after that vote and overhauled its compensation program as a result.
It reduced annual stock awards, changed the mix of long-term equity awards to tie them more closely to financial performance and tweaked a provision in Steinhafel’s pension plan. Those changes, in turn, lowered Steinhafel’s compensation last year and his severance package.
Gary Hewitt, managing director and head of research at GMI Ratings, noted, for example, that Target did not pay any short-term incentives to Target executives in 2013 because of poor results.
“Losing the bonus for 2013 did drop his average compensation over the last three years quite a bit,” he said.
Steinhafel’s base pay remained at $1.5 million in the company’s 2013 fiscal year, which ran from February last year through January this year, but he did not get an incentive bonus because the retailer failed to meet performance expectations.
The proxy also revealed that Steinhafel will remain on the company’s payroll as an adviser through no later than Aug. 23. During this period he will continue to receive the same base salary and benefits as when he was CEO.
Additionally, the company said that it had increased the pay of chief financial officer John Mulligan, who is acting as interim CEO while Target’s board searches for Steinhafel’s successor. Mulligan’s base salary will jump to $1 million from $700,000. In addition, he received a one-time grant of restricted stock worth $1 million and will be eligible for a larger annual performance bonus for stepping into the role of interim CEO.
Target’s board approved Steinhafel’s severance package and Mulligan’s pay last Wednesday, nine days after the company announced Steinhafel was stepping down.
Target also said in the proxy that its annual meeting will be held in Dallas on June 11. Target will report its first-quarter earnings on Wednesday.